- Mark Mobius, the legendary emerging markets pioneer, examines a company’s return on capital, level of debt, and ability to improve earnings per share in dollar terms before scooping up undervalued stocks.
- Since founding his eponymous investment firm, he has also started to engage with company managements to work on improving their corporate governance.
- In an exclusive interview, the 84-year-old veteran investor, who has been dubbed the “Indiana Jones of Emerging Markets Investing,” shared his top stock picks in far-flung markets and most interesting due-diligence trips.
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Mark Mobius was in South Africa when COVID-19 swept through the world in March.
“It was terrible because the lockdown was very severe, you couldn’t even walk on the street,” said Mobius, who was in the country to visit Clicks, a South African pharmacy chain he had invested in. He ended up in lockdown there for a month.
Mobius is not used to staying put. The 84-year-old investor, who has spent more than three decades trotting the globe for undervalued companies, is now itching to visit Turkey, where he has invested in two companies.
“I’m looking at the possibility of getting to Turkey in the next few weeks,” he told Business Insider in an interview.
“Face to face is always the best, that’s the most effective,” Mobius said of his preferred way of meeting with company management. “But we also realize that you’ve got to give and take. And in the case of this COVID lockdown, we got to take what we can get basically.”
Take he did. While COVID has kept the emerging-markets pioneer at home, it has also led him to find “more and more opportunities in the tech sector.”
“That’s probably influenced by the explosion in video conferencing, voice conversations, new smartphones, and the demand for microprocessors and semiconductors, which has been going up at a pretty good pace,” he said. “So we have been invested in companies that are related to that.”
As much as tech has changed the world, it has not changed how Mobius invests, which is by marrying top-down views of the macro environment with a bottom-up assessment of each company in his portfolios.
“The key is to find the right investment bargains. Very often the macro environment may not be the greatest, but we find a great company that can survive in that particular environment,” he said.
To find those hidden gems, Mobius screens thousands of companies based on their return on capital, level of debt, and ability to improve earnings per share in dollar terms. The scanning usually yields him companies that “have a good return on the money, [are] not heavily indebted, and can improve their earnings per share in dollar terms.”
“We then talk to the company and determine whether they’re going to be interested in working with us on the corporate governance area,” he said, noting that the emphasis on governance was added as part of his firm’s environmental, social, and governance approach.
“Our approach is to focus not on the E or the S at the beginning, but to focus on the G — the governance — because we believe that if you’re going to improve governance, then the E and the S practice can be easily addressed,” he explained. “Because you’ve got a management who wants to improve, who wants to change, do better things, and enhance the reputation of the company.”
Where Mobius is finding opportunities
Mobius, who has visited 112 countries in his lifetime, said he loves visiting all countries. But when it comes to investing, he homes in on just a few. They include India, Brazil, China, South Korea, Taiwan, Turkey, Russia, Kenya, South Africa, Malaysia, Vietnam and Egypt.
He runs the £107.2 million ($136.6 million) London-listed closed-end fund Mobius Investment Trust and a Luxembourg-domiciled mutual fund with Carlos Hardenberg and Grzegorz Konieczny. Because the portfolios hold a concentrated 25 to 30 stocks, Mobius said he finds the top holdings in the fund “really exciting.”
For example, the fund’s top holding eMemory Technology is a Taiwan-based company that produces and sells embedded, non-volatile memory technology. It licenses its chip designs to semiconductor foundries, integrated devices manufacturers, and design houses.
“The reason why it popped up is obviously because the numbers look good,” he said of the stock. “The earnings growth is good, return on capital is good, and the debt tends to be low.”
“But then we were particularly interested to see what they were doing in terms of new fabless design ideas,” he added, referring to the company’s chip designs. “It’s a very creative process and they’ve been really first-class in that regard.”
He also likes India-based Persistent Systems for its business model of “servicing enterprises with business software” as well as steel pipe company Apollo Tubes and cable company Polycab India for its “infrastructure impact.”
“The infrastructure spending in India is rising pretty fast and Polycab has the cables for that,” he said.
In China, Mobius has set his eyes on Yum China (YUMC).
“Yum has done pretty good with their Kentucky Fried Chicken franchise. They also have a Chinese hot pot franchise so they’re looking at interesting areas in different directions,” he said. “They have Pizza Hut, of course, which is not that great in China, but they’re trying new ways to boost that brand in the country.”
Mobius was handpicked by Sir John Templeton in 1987 to run the Templeton Emerging Markets fund, one of the first in the world. He oversaw Franklin Templeton’s emerging markets team until 2016.
The octogenarian, who has been dubbed the “Indiana Jones of Emerging Markets Investing,” also shared some of his most interesting due diligence trips.
He recalled visiting a Chinese pharmaceutical company years ago.
“I arrived at about three o’clock in the afternoon and I was shown into the office. But then I noticed looking at the window nobody was working in the company,” he said. “It seemed like that place was deserted, and it wasn’t a holiday. So that revealed to us that maybe this company is not doing as well as we thought, and we didn’t invest.”
He gained another precious investment insight while visiting an oil company in Nigeria.
“We were on the way to the office of this company and we were filling one of the company’s oil trucks, so this truck stopped,” he recalled. “And some kids went behind the truck and opened the spigot to let out the oil. They had an eight-gallon container and filled it up with the oil, closed the tab, and then the truck kept on going.”
He then told the company they were in trouble because people were stealing their oil, to which the company responded: “Oh no, that’s not stealing. We are allowing them to take some of the oil because if we don’t, they will then damage our trucks when they pass the neighborhood.”
“That was an interesting insight because we got to see how the company operated,” Mobius said. “I can understand why they were doing that because it was a matter of survival. So on-the-spot visit will often uncover some interesting information.”